Saxo Bank warns of 2014 Australian recession

From The Age:

Australia could face a recession within two years unless the dollar and interest rates fall and major labour market reforms are introduced, a leading economist warns.

Saxo Bank chief economist Steen Jakobsen warns that with the mining investment boom expected to peak in 2013, Australian authorities need to do more to ensure other sectors of the economy can pick up the slack.

He fears if no action is taken, then Australians could be staring at a recession in 2014.

‘‘You have an excellent starting point, you have the ability to both fiscally and monetarily support and mitigate the effects of this slowdown,’’ the prominent Copenhagen-based economist said. ‘‘If nothing happens, if we have a political vacuum leading to nothing being done next year and the price (of the Australian dollar) remains above where it needs to be then, yes, absolutely a recession is possible.’’

Greater workplace flexibility and the abolition of some indirect taxes are necessary to reduce unit costs and making businesses more competitive, Mr Jakobsen says, with a federal election due in the second half of 2013, he knows action on that front is unlikely.

‘‘2013 is a huge year in terms of the decisions that need to be taken but there will be a political vacuum until the election is held, which I think is a wasted opportunity,’’ he said.

So he says the heavy lifting will fall to the Reserve Bank of Australia (RBA), which will need to cut the cash rate sharply to stimulate the economy.

‘‘I think we will have a huge drop in GDP (gross domestic product) in early 2013, everything being equal, but it can be mitigated by an aggressive RBA,’’ he said.

…Mr Jakobsen thinks the RBA may need to cut by as much as 1.25 percentage points within a year.

…‘‘The Australian economy needs an Aussie dollar around 85 US cents to cater for the cyclical downturn and the lack of reforms in terms of creating alternatives to the mining sector,’’ he said.

Sensible chap.

18 Responses to “ “Saxo Bank warns of 2014 Australian recession”

  1. The Lorax says:

    I think we will have a huge drop in GDP in early 2013>

    Can’t see it happening that early, probably later in the year, but either way 2013 will be a great election to lose.

    The Australian economy needs an Aussie dollar around 85 US cents to cater for the cyclical downturn and the lack of reforms in terms of creating alternatives to the mining sector

    What? He didn’t mention any swings and roundabouts!

  2. Anton says:

    I have always thought that this economist speaks a lot of sense. But to suggest a sharp drop in interest rates so that we would all go out and spend money to prop up retail, so just increasing personal debt levels sounds like madness to me.

  3. douglasp says:

    This bloke probably has a massive mortgage and needs an interest rate cut. Low interest rates and interest rate cuts allowed Australia to TRIPLE its debt levels in the past 20 years. Low interest rates destroy wealth

  4. raveswei says:

    “‘‘You have an excellent starting point, you have the ability to both fiscally and monetarily support and mitigate the effects of this slowdown,’’ the prominent Copenhagen-based economist said.”

    If we are in excellent starting position, what would they say about US and Europe position before recession in 2008?

    • Wing Nut says:

      The Government might be in a reasonable position but the private sector is pretty much tapped out. Given that Jakobsen says that interest rates will be 1.25% lower will mean we are in in ZIRP territory with an economy in near recession, I can’t imagine too many punters wanting to take on more debt.

  5. Janet says:

    A sharp drop in interest rates could do all sorts of things; take your pick of ‘good things’ it will do to stimulate the economy. Hence the A$ will respond to good things…..by falling??!!! Interest rates are past the level at which they dictate the level of pretty much anything; let alone the value of an exchange rate. So let’s forget about that as an avenue for exchange rate rebalancing. Only direct interventionist policy – protectionism, if you will, is likely to mitigate the ceaseless rise of the A$ ( and NZ$ in tandem)

    • GSM says:

      Selling more and more Debt isn’t helping matters. It may be AAA but it shouldn’t be out there in the forst place. Right there is a source of demand for AUD’s we could do without.

  6. Ortega says:

    This is a damned if you do, damned if you don’t scenario.

  7. barry says:

    Interest rates will move in tamdem with unemployment rates. Unemployment up, interest rates down.

  8. Muzzer018 says:

    Either interest rates return to normal levels or the $AU needs to correct to 2.5 to GBP.

    Same affect either way as far as getting investors to get on board.

    Low interest rates discourage saving but then validate the squirrel reaction that an economic winter is approaching.

    Move too quickly in any direction and the RBA will spook this flock so bold moves are out.

  9. 3d1k says:

    2014 – still a year or two away and five years after most of the rest of the developed world!

  10. Diogenes the Cynic says:

    2014? It will hit in 2013 and will be obvious by late 2013…

  11. Explorer says:

    My bet is thta the good folks in Treasury are already modelling how to maintain employment in the face of the run off of the mining and resource processing construction boom.

    As the resource exports from the current investment come on stream there is a good chance that GDP will be held up by the External sector.

    If employment can be maintained (and remember mining is only 2.5% of total employment) then GDP might not even fall, or even if it does, employment and household income of the 99% might be maintained.

    Sounds a bit wishy washy, but that’s what a Labor government will try to achieve, and remember the fiscal contraction ends at the end of the 2012/13 year.

    My bet is that they are working on cheap high employing strategies that don’t inflate an asset boom. Everything will be “shovel ready” this time!

    • Mav says:

      I think you give Treasury too much credit. Haven’t you heard – their “shovel-ready” plan is to re-ignite residential construction.

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